AptarGroup, Inc. ($ATR)

Good morning. I'm Dan Rizzo from Jefferies Equity Research. Up next, we've got Apto Group. With us today is CFO, Vince Acano, our President, Ted Theodorakis, with the former division; and Mary Skafidas, who is VP of IR. We have a 20-minute presentation, followed by time for some Q&A .

So without further ado, 1 of you guys want to kick it off? Great. Let me just make sure I have the clicker works. Fantastic. Thank you, Dan, and good afternoon, everyone. Thanks for taking the time to join us today and learn a little bit more about the Apta story. So if you haven't heard of us previously, then who is Aptar -- we are a leader in drug consumer products, dosing, dispensing and protection technologies. And what that really means is that we are an expert in the end user. We really do help to create the patient's experience and the consumer experience. We're also at our core technology company. We own the IP of everything we manufacture. We're truly global. We operate in over 20 countries around the world across 4 different regions, with Europe being our largest region. And for the year end of 2025, as you can see here, we generated about $3.8 billion in revenues across our 3 primary segments. You can see here, pharma was about 46% of revenue, about close to 70% of our adjusted EBITDA. Beauty was about 35% of revenue and about 18% of adjusted EBITDA and closures was about 19% of revenue and 13% of our adjusted EBITDA. Today, we'll focus a lot on pharma, but I'll also give a few key highlights across Beutnclosures as well. Across each of these segments, the key thing to note is that we serve attractive end markets with really good long-term growth potential. Additionally, I will be remiss not to mention, we have a very strong balance sheet. We're currently operating with leverage at about 1.4x EBITDA, which is amongst the lowest end of our peer group. And I would also add that having that strong balance sheet is, in fact, a competitive differentiator when you think about the long development times in pharma, our customers want to work with a partner who they know is financially strong and has the balance sheet ability to work with them through decades of development and commercial cycles. We're also very proud of our track record of consistently returning capital to shareholders. In the last 5 years alone, we've returned about $1.2 billion to shareholders through dividends and share buybacks. We're currently in our 32nd year of annually increasing dividends, which we're very, very proud of. And last but not least, we are also consistently recognized as a sustainability leader. And again, this is something that both our customers and our employees really highly value, and you'll see some of the awards here at the bottom of this slide. So let's talk a bit about our technology and industrial capabilities across our end markets. So what you see in this slide here is vertically, these are the different end markets that we operate in. And then you see horizontally, how our technologies are leveraged across each of these verticals whether it's fine mist pumps, which you can see from beauty to pharma across the board and some of you might already know actually that our pharma business was actually born organically from our beauty business and so we can kind of see how the technology gets leveraged across the different end markets. Again, whether it's famous bumps or dispensing closures, as you can see here, aerosol abs, bag on valves, et cetera. And then when you look at the industrial capabilities, what you see here is precision injection molding, high-speed assembly AI is a quality control being a key defining feature across every single 1 of our factories, irrespective of what segment we're talking about. Let's talk about the market opportunity. I did mention in the opening slide that we do serve markets that are attractive with long-term growth potential. I think that's really important because when we look at industries, 1 of the things we look at is what are the secular trends in that industry. And when you look at the markets that Aptar serves, we've got secular tailwinds in these markets. Starting with the pharma market, pharma packaging market, the total addressable market, there's $165 billion and the market projected growth rate is about 7%. Now that's not our forecast. That's the market projection in terms of the $165 billion. Beauty is a $38 billion TAM projected to grow at about 4% closures is a smaller TAM, $7 billion, but still important projected to grow at 2%. And historically, when you look at our numbers, we've traditionally in the closures business, actually beat the market growth rates, largely driven by our innovations, which actually helped to convert the market. Overall, Pharma, when you look at our historical growth profile, we've actually beat the market growth -- and again, we see some great opportunities in beauty as well. And so when we think about Aptar being a growth company, you can see here that we are already serving very attractive markets with long-term growth potential. I also mentioned earlier that in the last 5 years, we've returned $1.2 billion of share of capital to shareholders. When you look at our capital allocation, we are I would say, pretty well balanced between investing in our business. As you saw from the previous slide, we are a growth company. So we do invest in our business, very important to generate that growth. And those are organic CapEx investments as well as M&A. And preferentially, we actually allocate a lot more of our capital to the pharma segment, just given the higher growth, higher profit attributes of our pharma business. We, of course, invest also in beauty and closures, but preferentially most of our capital goes to pharma just given those growth attributes. And then -- so that's about 2/3 of our capital when you look at the last few years. And then roughly 1/3 is returned back to shareholders. through dividends as well as share buybacks. Share buybacks continue to be the most discretionary part of our capital allocation methodology. And so you might see some years where we're a lot more aggressive in share buybacks and other years where we're required in share buybacks. That's a lever that we pull on as and when required. All right. So -- let me just spend a quick minute on Beauty. So our Beauty business, a fairly material business. You can see here, $1.3 billion of revenue for the company. When you look at 2025, we had about 2% core sales growth and 12% adjusted EBITDA margin. Very global in nature, you'll see there about 60% of our revenues in beauty are actually in Europe. That being said, a large part of those sales in Europe actually do end up in other countries as our customers ship those products elsewhere. You'll also see that we're fairly well represented in North America, in Latin America and Asia. And Asia continues to be a really good region for us as well in terms of future growth potential. And then you can also see here that we do serve a lot of the large brands that I'm sure you know and recognize, L'Oreal, P&G, Unilever, to name but a few. We do expect, as we said on our Q1 earnings call, that we will see some growth in Beauty in 2026. We've done a lot of work around cost measurements or cost reductions rather in the beauty segment, and we did have some short-term timing impact in terms of some supplier impact that impacts our Q1 margins, but we certainly expect the 12% margins to be improved as we get into the sequential quarters for 2026. On the closure side, -- this is actually a fairly newer segment. Closures was formed in 2023 by combining our food and beverage and personal care elements that were previously managed elsewhere, and we combined that and created a new segment called closures, and it's actually been doing fairly well. You can see here for 2025, we had 1% core sales growth. Closure's core sales growth is impacted by the timing of resin pass-throughs. And so in 2025, we have lower investing pass-throughs, that's going to change in 2026 with all the raw material cost increases, which we actually tend to pass through and we are passing them through. But if you sort of look at the pure product sales and closures in 2025, they were actually up 4% which, again, going back towards the market opportunity, it's a higher growth rate than the market, right? So we've been doing pretty well in closures. EBITDA margins at the low end of the long-term target range and we continue to work with our closures team to actually see margin improvement as well over time. Again, you'll recognize a lot of these names in terms of customers that we serve, Kraft Heinz, PepsiCo, et cetera. Okay. So now let's talk about form. Let's focus on pharma. Pharma is our core growth engine. It's the largest solar segment, the fastest-growing, most profitable part of our portfolio. And really our market leadership here is anchored by our proprietary drug delivery systems, and that's what Alex will talk about a lot more momentarily. That's about 70% of the revenue in pharma, followed by injectables at about 19% of revenue, an active materials solutions at about 10% of the revenue. We have decades of regulatory and technical expertise in this part of our business, which have made us the partner of choice to bring a drug from formulation straight through to patients. We also have over 4,500 active and pending patents in pharma, and that's something that we're very, very proud of. Going back to my earlier comments around we being an IP driven company and innovation tends to be how we differentiate ourselves across all our segments and even more so when we look at our overall pharma segment. And then as you can see here, we deal with all the leading pharma companies on a direct basis, and we often also supply their CMO partners as well. So our differentiated position here is again built on intellectual property being deeply involved in the regulatory process, which ultimately leads to lock-in of our devices, right, in the drug master file and that is a key differentiator for us. That's what makes our revenues in pharma very, very sticky is that lock-in in the drug master file. Again, Alex will talk about that. momentarily. And also as a manufacturer, the engineering and the science and the know-how of how we make our products, but also how they interact with the drugs. Ultimately, how they also help patients is absolutely critical, and that's part of the moat that we've built over time in this part of our business. And that's based on 40 years of expertise and again starting the business up organically from our beauty business, and then augmented by acquisitions over time. And this gives you an additional view of how the portfolio has also evolved over time. This slide gives you a view of total drug sales, how they break down by route of delivery. And we have a very strong position in inhalers. You can see respiratory, smaller share of the overall drug sales, but something where Atara plays a very big role. One of the things that our current CEO, Stephane often says is if it goes through the notes after he's involved, and he's absolutely right. So smaller slices of the total pie, but we have a very big share of that pie. And then, of course, we're also present in dermal, ophthalmic and of course, injectables, which I talked about earlier. And oral, we are present through our active material science solutions. So the end result of all of this is a very attractive growth rate. So when you look at the revenue for pharma over the last 10 years, we're looking at a 9% CAGR, fully supported by our 7% to 11% long-term target growth range, which is anchored in our historical performance, but also supported by what's currently in our pipeline, which Alex and I will talk about also momentarily. And then you look at the adjusted EBITDA, which has also grown meaningfully over time as well. When you look at 2025 and 2026, we've talked a bit about some temporary headwinds that we're facing in emergency medicine destock we quantified that destock impacting 2026 by approximately $65 million. So that is definitely a temporary impacts to our revenue growth. outside of emergency medicine. And by the way, we're tracking very, very strongly to that estimate. So no surprises at this point in time. Outside of our emergency medicine portfolio, we continue to see broad-based growth, and we're very excited about what our growth rates, excluding EM will look like for 2026 and, of course, beyond that. So with that, why don't I pass it over to Alex to dive a little bit deeper and this part of the business, PDDS.

Thank you, Vanessa. Thank you, Dan, for the invitation. As Vanessa said, I'm going to talk to you a little bit more about proprietary drug delivery systems. My role is Aptar is to look after our prescription division and together with consumer health care makes up the PBDS as we say. The other 2 circles you see there, injectables, I'll touch on that a little bit, even though that's not within my direct scope. Active Materials Solutions is an interesting acquisition we did several years ago, a company called CSP that provides barrier container technology to scavenge to protect drug products and food from various elements. You actually see those 3 pictures encompass fairly well what we do in PDDS. The first 1 is a nasal spray with the example of being of NARCAN, a pretty high profile nasal spray that's come out recently an aerosol inhaler in this case ventolin that delivers drug to the lungs to treat asthma COPD. And then third, an eye dropper. So those are the main families of product technologies that we offer and the types of therapeutic areas are being addressed with those delivery systems, allergy, pulmonary. This is really where we got our start many, many years ago. And more recently, things like systemic nasal drug delivery eye care, I mentioned. Dermal is a different one. I could have shown a picture of a dermal container there. That's a smaller segment for us, but nonetheless, it's part of Aptar Pharma as well. This slide shows you the life cycle of a nasally delivered molecule over a pretty long period of time. We're not naming the drug, but if you do a little homework it won't be that hard to figure out what we're talking about. What's interesting about this life cycle. First of all, this is not an exceptional example. We have quite a few of these, but it shows pretty well the longevity of the -- and the growth of the revenue that we see over time. First thing to know about our delivery systems is that it takes a fair amount of time to develop. And so we're in contact with the customers early on. This particular case shows 6 years. That's actually at the short end of our development cycles. It's not uncommon for us to take 7 to even 12 years from initial contact with the customer until the product hits the market. So at some point, the original launches a product -- in this case, enjoyed exclusivity on the market for 12 years, grew the product nicely over that time. At some point, generic hit. In this case, a generic shift a few years after the patents expired. Why? Because nasal drug delivery is not easy, it's tough. So even though the patents expired, same things with dry powder inhalers and so forth, just because the patents have expired doesn't give you a green light to get to market. It's complex and it takes them time. So generics come in. The brand comes in with a brand extension. Eventually, the originator goes OTC, then the generics OTC. So all this long story to say that over 30 years, Aptar continues to not only generate revenue from this particular molecule from different sources, but that continue -- that revenue continues to grow to this day. So it's an example of how 1 single molecule can create sustained revenue over long periods of time. How we got started with this, Vanessa mentioned that the origins of our product technology really came from the perfume cosmetic personal care market. In the 1980s, somebody decided to try to spray them in a vertical direction to get stuff into the nose, and we found it worked quite well. And our early pump systems were basically copies of the perfumery pumps. The first indications that were being looked at were allergy, asthma, COPD. A little by little, we started getting into different types of things. People realize that spring something up your nose, wasn't just to deal with an issue in your nose, could actually get very effectively absorbed into the bloodstream and take care of problems throughout the body. Migraines were 1 of the first things that launched in that manner on the market. Not much happened for a number of years until probably 10 years ago, there was a renewed interest in what we call SNDD. So systemic nasal drug delivery using the nose to deliver drugs that get absorbed into the bloodstream and work elsewhere in the body. And in the past 5 or 6 years, we've seen an explosion of launches on the market for products that use exactly this pathway. And what this shows is that our next block, most the brain, I'll talk a little bit about that next. We keep adding blocks of technologies to the previous ones. The premiums continue to grow. So it's really an incremental accretive type of business that we're in. Speaking of nose to brain, it's not easy to get drugs even if you give them intravenously to get them into the brain. There's a blood brain barrier there that's specifically there to protect the brain from external sources. And so to get a drug into the brain to do its thing on certain types of diseases is a real challenge. What scientists have found is that there seems to be a connected pathway, a bypass a shortcut directly from the node to the brain, bypassing the blood-brain barrier completely. This offers extraordinary opportunities to deliver all kinds of drugs to the brain to treat diseases that have been notoriously difficult to get at, specifically for that reason. I mentioned here, Alzheimer's, Parkinson's, all kinds of neurodegenerative disease, Parkinson's depression and so forth. So for us, we really see this as the next big thing. It's obviously still in the early stage. The basic science is being looked at, and we're taking part of that. One thing you need to know about Aptar is we don't just supply devices. We also get involved in the science. We've partnered with Wake Forest to demonstrate that intranasal insulin as an example, can be delivered successfully directly to the brain through this pathway. Over the years, Aptar has acquired several different tuck-in acquisitions, mostly service entities that allow us not just to be present at the very beginning with the customer to give them samples and later on to commercialize but throughout the drug development processes. So whether it's a formulation development, analytical method development, clinical trials, regulatory filings, we now have entities that are able to assist the customers throughout that process. These are not extremely meaningful revenue generators for us, but obviously, it allows us to work more closely with the customer from an early stage to understand what they do. By better understanding your customers, your better -- you're able to be a better partner to them. And this is just -- it's not -- we didn't grow every possible disease on the chart. Every disease you see listed there. There is an active project in our pipeline that tries to deal with these diseases. Just a couple of years ago, I could have never dreamed of putting a slide like that on there. Some of these products have launched nor in the market recently just last year, 2 products were launched to treat heart diseases. We have a product that was launched to treat depression a couple of years ago, but people are working with our device on all these different therapeutic areas. So a very bright future for systemic nose delivery. Just a quick word on injectable solutions. Here, we're talking about componentry, elastomeric components, stoppers, plungers, rigid needle shields, so a bit different than the fully integrated device solutions that we offer in PDDS. But nonetheless, this allows us to step outside of our niche and be exposed to the injectable world, which allows us to understand the customers, the markets, the requirements and so on. We've increased capacity significantly in the past couple of years. The FDA has been pushing for over a decade now to significantly upgrade sterile manufacturing conditions here in the U.S. The Europe followed more recently with Axon. It's pushing everybody to upgrade their plans but also to upgrade their packaging and their componentry. So we invested significantly not only in capacity but specifically on what we call high-value premium services and components, rapid transfer bags, ready-to-use components anything that will allow our customers to remove the operator as much as possible from their process. And speaking of high-value products, GLP-1s, obviously, is 1 area where there's a tremendous amount of excitement and activity. Just to give you an idea of what our revenue has done in the past couple of years. Granted, we've started from a fairly small base, but we've nearly doubled our revenue from GLP-1s just in the past couple of years. If you take all of our high-value products in general, lump them in with the GLP-1, net revenues increased roughly 60%. So the base business is growing nicely. But in addition to that, we're able to get on new products and transition customers to higher-value products at the same time. I think we said that Vanessa, you were going to take your time. But I think this is something that I've already presented, right? So these are the top therapeutic areas in our pipeline today. And you see that respiratory, which I didn't talk about an awful lot, but inhalers for asthma COPD are at the top of our pipeline in terms of opportunities. There's an important propelling switch that's going on right now that we're very much involved in. The biologics and second, systemic nasal delivery first. So the takeaway here for us and for you guys is that there's a significantly diverse pipeline in terms of therapeutic areas where nasal sprays are no longer just used to treat allergic rhinitis and decongestant but for a wide variety of diseases. We have a large and growing pipeline. And injectables is taking an presently important role in our revenue and our growth. Do you want to take on the last slide?

Why don't I do that. The stack team. And I really do hope that the slide on the pipeline composition resonated because I think that is really, really what gives us confidence in our long-term growth. And as you know -- and I really want to highlight the diversity, as Alex said right of this pipeline. It's respiratory biologics, I mean the list goes on. And the way this pipeline has evolved in the last 5 years is really significant. So when people ask what makes you confidence that you can -- yes, thank you for showing us the last 10 years and your 9% CAGR, what have you done from you lately. It comes back to this. This is why we feel confident in the 7%, 11% long-term growth rate. So the key takeaways are clear. The pharma fundamentals are quite strong. You've seen the pipeline. It's really -- what's really underpinning that is the breadth of our pipeline, which really continues to grow in both scale and scope. Injectables doing really, really well. And you may have heard us talk about, we see this business on a long-term basis, being high single digits to low double digits in growth. And if you look at our historical results, particularly in the last year or so, you'll see that we're really capitalizing on that and posting some really good growth rates in that market, which we expect to continue. You've heard a lot about our innovation overall, and that's passed by a fairly robust IP portfolio. And of course, we continue to expect to participate in this growth. beauty closures. We do expect improved performance, particularly as we get into sequential quarters of 2026. And last but not least, coming back to the very strong balance sheet. And that strong balance sheet gives us a lot of optionality and the ability to not only invest back in our business, which is so critical for us, but also to return capital back to shareholders and meet our commitments. So with that, I'll leave it there, down and open it up for any questions.

Okay. So we have about 4 minutes for questions. If there's anything from the audience, please let me know or I can just kind of go ahead here. So I guess just to start, guys, you've action doing some capacity expansions in the past few years. But seeing what the opportunity is in GLP-1s with Nepi and with biologics. I was wondering if there's any necessity for more investment in manufacturing or just capacity expansions to meet what should be a fairly robustly growing business over the next few years?

So maybe I'll take that. Absolutely. As you called out, we've seen growth in GLP-1. Biologics, you saw the pipeline, right, where biologics in the top 3, I think it was in the second spot, so a key driver of future growth for us. In terms of capacity expansions, we've made quite sizable investments in the last few years. We call them big box build-outs, which is the big factory build-out. We've done that, and we don't see that being necessity in the near term. Of course, we'll continue to add lines as required. We continue to invest in CapEx in automation, having more automation on the factory floor, driving more efficiency in our manufacturing processes. So there is CapEx, but we don't foresee any sort of the big build-outs as we've done historically.

And then 1 of the things you did also point out was the kind of the opportunity from ANX compliance I was just wondering what your products do specifically that address the needs for that new regulation?

Alex, do you want to take that one?

Sure. In terms of annexing the whole idea is to try to get the operator as far away from the product and the process as possible. So what does that mean for us is we can deliver ready-to-use components. They get bags and port bags and simply connect them into their clean room. That's 1 area. They're also expecting cleaner components. So we have different types of processes that are able to offer premium fill type components.

And so 1 of the things that's interesting is the services or the digital health component of your business. Do you see this as a growth opportunity? Is it more of a thing where just an evaluated service that kind of increases the moat for your products? I guess is the way to think about it? Is it more about growth or more about just protecting and stopping competitors?

Definitely the latter. Today, it's too small to provide meaningful revenue or profit to the company. But it's an extremely strategic acquisition for us a couple of years ago to increase the moat to deepen the moat as you said, but also it gives us access to a completely different level of people at our customers -- oftentimes with the devices and components, we're talking with R&D guys, formulators, purchasing people here, you have access to C-suite people at the pharma company even from a small entity like our digital health group, they want to talk directly to us. So there's a lot of other things that I could talk about, but to me, the 3-suite access to key decision-makers on itself of its own makes this acquisition valuable to us.

All right. We have 1 minute. Is there any questions from the audience?

Can we ask about the injectable unit specifically, the sort of growth between GLP-1s? Hopefully, that's better. presentation. So my question is about the injectables unit and just trying to get at, I think you guys grew on an organic basis 1% full year 25% and 20% or so in the first quarter, so pretty good growth rates. How much of that growth is driven by GLP-1s versus GLP-1s in the injectables unit?

Do you want to take a I can add color, if needed to.

Yes, I think that the first thing to know is maybe compared to our competitors, GLP-1 is still a relatively small portion of our business. So we're not as exposed -- and we're talking -- 1 number I could give you is in the past 3 years or so, we've practically doubled the sales of our GLP-1 associated components. And then even more if you include also our high-value products for biologics, NX1, et cetera. So we don't communicate specifically specifics on GLP-1.

From a small base.

Yes. From a small base, we've nearly doubled.

All right. Thank you, guys. We are out of time here, and we really appreciate you guys coming today. So thank you, and thanks, everyone, for listening. Thank you.